Greetings first of all, The question is quite valid. And, I want your definition of Money?
Literally, think and write first.
What is Money for You ?
Think and write it down………………
What was Barter system?
I want you to go back to times back when there was no Currencies in place and people used Barter System. In this system, there was no money involved and people used to exchange things.
Ex- You are a farmer having Wheat grains and suppose I am a Cobler having new shoes. You want Shoes and want grains to eat, we both will exchange things after negotiations. Initially you will ask for 10 kg of Wheat grains for one pair of Shoes and I am saying that I will give only 8 Kg (I am just taking these numbers to make you understand, the actual numbers would have been different).
This we are talking of a simple trade between two people & now suppose this trade is taking place between thousands and lakhs of people. Then, it would have become the rate fix in the market that 9 Kg of wheat grains will fetch you one pair of Shoes. And people would have used that standard for days and years.
Problems in Barter System :-
But what if one wants to buy the Shoes for his entire family (suppose there would have been marriage in family), assuming that the family had 10 members. Now, how much weight they need to carry, 90 Kg right, not so much heavy.
But suppose they want jewellery as well. Now, the rate of jewellery of Gold can not be same as that of Shoes (in terms of Wheat Grains). Let’s say, 200 Kg will fetch you one Gold Ring. Now, what if Family wants to buy 5 Gold rings, then they need 200*5 kg = 1000 Kg of wheat grains. This is quite heavy or anybody to carry from one place to another when there were no means of Modern transportation.
There were many problems into Barter system, they are listed below :-
(a) Perishability of items (suppose a jeweller will sell 1000 golds rings in a year so, he will have tons of wheat. How will he store that? What if the termites found the wheat sacks? and Many more.
(b) Deferred Payments (Somebody took the item and promised to pay it when crop will be harvested and crop did not grow well)
(c) Difficulty in determing Value of one thing to another.
and many more.
Way Forward :-
Then, somebody would have thought of pegging everything to a commo thing and in Earlier times, it used to be Gold Coins (because not so easy to produce). And then, slowly slowly, Fiat currencies took over (Fiat currencies are the currencies that exist today in form of notes). So, back to our question now.
What is Money?
Money is something that has purchasing power of goods and services.
Mainly, three common forms of money exist today :-
(a) Commodity (Gold/Silver)
(b) Fiat Money (Bank NOtes)
(c) Digital Currency (in form of Google Pay/Phone Pe,etc. )
